Merchant Cash improvement 101
Every entrepreneur or businessperson knows that it takes money to earn money. Every business-minded people like you and me also know that it’s very frustrating to look for small business funding especially when you have an excellent idea but don’t want to turn to the edges or other lending institutions for a loan.
Let’s confront it. When someone goes to the bank to borrow money, they typically have a long list of requirements to get an approval. You also have to at the minimum know a little bit of industry jargons like CBR, DTI, LTV, STIP and many other terms and acronyms. On top of that, you have to convince your loan originator or loan officer that your business idea will work.
The good thing is that there are different supplies of financing for small to medium-sized businesses. The most popular is merchant cash improvement (MCA), otherwise known as credit card factoring. One advantage of a merchant cash improvement over traditional loans is that the money can be spent in any business-related expenses. The only thing that matter of course is whether the merchant will be able to pay back the provider. The merchant has the flexibility of spending the money in any way, be it refinancing the existing business, remodeling an office, upgrading tools and equipments, as an addition to the working capital, marketing, payroll, and other operating expenses.
So how does merchant cash improvement work? The provider purchases future credit card receivables from the business owner. That is, the provider advances money on the business owner’s future credit card receipts. basically, merchant cash improvement is not a loan to the client receiving the money. instead of borrowing money, the merchant is selling an interest in his or her future credit card receivables. As long as the merchant’s credit card receipts does not fall below 50 transactions a month, has a minimum of $5,000 in credit card sales, has owned the business for the past 12 months and must not have any open bankruptcies or foreclosures, then the merchant is eligible for a cash improvement. Payment of the money is done from credit card receipts so the business must accept credit cards from customers. There is no due date and no fixed payment, so that when sales are down, the payment rate is also low and when the months are up and business is good, the payment rate also goes up as long as the merchant can provide it.